Sopuruchi Onwuka

Developing countries are entering a new phase of financial strain as debt costs climb to record highs, with the World Bank warning that many nations are now facing the largest financing shortfall in 50 years. Between 2022 and 2024, the gap between developing countries’ debt repayments and new financing widened to $741 billion. Interest payments alone reached a record $415.4 billion last year.

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Nigeria is among the countries most exposed. The World Bank said growth slowed across several African economies despite a 3.4 percent rise in sub-Saharan Africa’s external debt stock in 2024. Ghana and Zambia secured debt restructuring deals, and Somalia received debt forgiveness, but most countries, including Nigeria, continue to struggle under rising financing costs.

Nigeria’s challenge is compounded by new rounds of borrowing under the administration of President Bola Ahmed Tinubu, even as the federal budget faces widening fiscal gaps. Higher global interest rates have pushed up the cost of refinancing existing debt, leaving Nigeria with fewer resources for health care, education, power infrastructure and other essential services.

The World Bank said rising debt service is “crushing” public finances in many developing countries. Nigeria is already spending a large share of government revenue on interest payments. As global borrowing costs increase, domestic options are becoming more attractive to governments, but this can crowd out private-sector lending. If Nigerian banks continue to favor lending to government instead of businesses, firms may face higher borrowing costs and limited access to credit, further slowing growth.

The pressure on Nigeria’s currency adds another layer of risk. Servicing foreign debt requires more dollars, putting strain on the naira, which has been losing value. A weaker naira makes imports more expensive, fuels inflation and raises the cost of doing business for companies that rely on imported inputs.

Nigeria also faces the challenge of rolling over debts with short maturities. With bond markets demanding interest rates near 10 percent, almost double pre-2020 levels, refinancing could become significantly more expensive. The World Bank noted that countries such as Angola have issued billions of dollars in bonds this year, but said Nigeria may face tougher terms because of its fiscal and currency pressures.

The report warns that bilateral lending to developing countries has collapsed, falling 76 percent to $4.5 billion, its lowest level since the 2008 financial crisis. With concessional financing shrinking, many countries, including Nigeria, will rely more on costlier commercial borrowing or domestic markets, reducing policy flexibility during economic shocks. Multilateral institutions increased their support, and the World Bank lent a record $36 billion in 2024, but 54 percent of low-income countries are now in or at high risk of debt distress.

Nearly $90 billion of external debt was restructured in 2024, the highest level in 14 years. Ghana, Zambia, Sri Lanka, Ukraine and Ethiopia reached restructuring agreements, while Somalia and Haiti received debt forgiveness. But global financial pressures continue to mount.

The World Bank’s chief economist, Indermit Gill, said improving global financial conditions should not lull developing economies into complacency. “They are not out of danger,” he warned, adding that debt is building up “in new and pernicious ways.”

The bank urged countries to use the current window of slightly improved financial conditions to stabilize their budgets, strengthen revenue systems and reduce dependence on costly borrowing. Advocates echoed this concern. David McNair of the ONE Campaign called on governments to find sustainable financing solutions such as foreign aid and other low-cost funding sources decline.

For Nigeria, the warning is especially stark. Weak revenue, high inflation, rising living costs and a volatile currency leave little room to absorb higher debt service. Without decisive steps to improve public finances and restore confidence in economic policy, analysts warn the country could slide deeper into crisis—at a time when citizens and businesses are already under heavy strain.